The Governing Council of the European Central Bank (ECB) has announced that interest rates will remain at their present levels for an extended period of time and well past the horizon of the net asset purchases that are intended to run until the end of September 2018.
Analysts watched to see if policy makers planned to wind down the bank’s programme of quantitative easing, but it confirmed that the net asset purchases, at the current monthly pace of €30bn, will run to beyond September if necessary.
They could even run until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim of below, but close to, 2% over the medium term.
The primary objective of Governing Council when it sets the key interest rates is to maintain price stability.
Following the announcement on Thursday, the interest rate on the main refinancing operations that normally provide the bulk of liquidity to the banking system remains unchanged at 0.00%.
The rate on the deposit facility that banks may use to make overnight deposits with the Eurosystem will continue to be -0.40%.
And the marginal lending facility rate that offers overnight credit to banks from the Eurosystem will stay at 0.25%.
Non-standard monetary policy measures
Regarding non-standard monetary policy measures, the Governing Council confirms that the Eurosystem will reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary.
It is hoped that this will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
Growth projection downgrade
The eurozone recorded its best performance in a decade in 2017, yet most of the recent economic data releases point to a lower-than-anticipated growth rate for the first quarter and inflation still remains below the ECB’s objective.
Analysts are concerned that a combination of reduced business confidence and falling industrial output in the region will lead to a loss of economic momentum. Forecasts have been revised downwards amid fears that trade tensions are creating a slowdown.
After five consecutive increases in the 2018 outlook over the past year, economists in the latest Bloomberg survey cut their forecast for the eurozone to 2.3%. They said this reflected weaker consumer spending and factory activity. They also lowered their estimates for growth in each of the first two quarters to 0.5%.
Florian Hense, European economist at Berenberg Bank in London, said: “The acceleration phase has clearly stopped and risks are to the downside. But this is not to be confused with a slowdown, the eurozone is on a firm growth phase and, if some these risks do not materialise, we could be in for a rebound in the summer.”